UPDATE 2-Colombia holds interest rate again, extends dollar purchases

Redacción de Reuters

4 MIN. DE LECTURA

(Adds finance minister quote, context on rates and economy, byline)

By Peter Murphy and Nelson Bocanegra

BOGOTA, March 21 (Reuters) - Colombia’s central bank on Friday held its benchmark lending rate unchanged for a 12th straight month, as expected, as it seeks to maintain monetary stimulus while inflation remains benign.

Policymakers also decided to extend the bank’s dollar purchases and buy up to $1 billion through June, as they prepare for an expected rise in demand for Colombia’s currency from a government push to increase international debt sales.

The board maintained borrowing costs at 3.25 percent, as forecast by all 28 analysts in a Reuters survey earlier this week, a level that has held steady for a year after a cumulative 200-basis point cut from mid-2012 to February 2013.

In its decision statement, the bank said economic growth accelerated in the second half of 2013 and inflation continued to rise in February - factors that analysts expect to lead to a rise in interest rates around June or July.

“Interest rates remain at levels that stimulate aggregate spending and hopefully allow (gross domestic) product in 2014 to approach the productive capacity of the economy as inflation converges towards the 3 percent target,” the bank said.

Colombia’s inflation rate is still lingering near the bottom rung of the bank’s 2 to 4 percent target range with 12-month price growth of 2.32 percent through February.

Economic growth is picking up nonetheless, with expansion of 4.9 percent in the fourth quarter of last year, the government announced on Thursday, taking 2013 growth to 4.3 percent, shy of the official 4.5 percent but beating analysts’ 4.1 percent view.

FOREIGN BOND SALES

Colombia’s economic management received a welcome endorsement this week when J.P. Morgan raised the weighting of the Andean nation’s sovereign debt in two of its main indexes, causing the peso to strengthen and boosting bond prices.

The government has been seeking to increase bond sales to foreign investors and last year slashed taxes on earnings from such investments to 14 percent from 33 percent previously.

Head of public credit Michel Janna, told Reuters in an interview this month that further reforms were being prepared to boost the attractiveness of Colombian debt in international markets.

“This is a very important decision, maybe the most important decision in a long time in terms of how international markets behave towards Colombia,” Finance Minister Mauricio Cardenas said after the meeting in reference to J.P. Morgan’s decision.

He said changes to J.P. Morgan’s indexes would automatically unleash new demand for the country’s debt by investors whose portfolios seek to emulate the investment bank’s indexes.

Morgan Stanley said on Thursday that Colombia is likely to see $10 billion of inflows into local bond markets due to re-weightings in key emerging bond indexes.

Colombia’s economy has been propelled by rising consumer demand yet inflation has remained low despite monetary stimulus because of spare productive capacity, a negative output gap which Cardenas said would likely close later this year.

That would consequently nudge inflation to the center of the 2-4 percent target range, he said. (Additional reporting by Carlos Vargas and Monica Garcia, editing by Andrew Hay)